Death Watch: Yahoo!

The "death of…" may not be appropriate label for the passage that follows. The very association with death conjures images of negativity or dark thoughts. Rather, I hope to focus on the positive aspects of what arises from the foibles, and the subsequent constructive experiences, of building a powerful destination.

Andrew Carnegie said, "There is no class so pitiably wretched as that which possesses money and nothing else." Much later, Sumner Redstone offered the following pearl of wisdom: "Success is not built on success. It's built on failure. It's built on frustration. Sometimes it's built on catastrophe."

The search and content owner with the excited name simultaneously possess both tremendous equity and the potential for catastrophe. Google closed out 2006 sitting on $11 billion while Yahoo! earned a paltry $6.4 billion, over $1.1 billion in 2005.

The company's potential for future success will be built on the long-term survivability of diverse and rich ad models, the integration of user-generated content (UGC) and the ability to effect change and reach out to the user base on whichever screen they choose.

At the close of 2006, Yahoo was actually criticized by analysts because it failed to achieve massive growth. Just how much growth constitutes a massive increase? Unfortunately, Google is the standard by which growth is measured; that's just a bit excessive and, at the very least, impractical.

Perhaps we can still discuss this "death of," just not the death you might think. Without further delay, I offer you the death of irrational thought, unreasonable expectations and ill-informed analysts panicking already skittish shareholders with nonsensical drivel.

Yahoo generates revenue from advertising while attempting to provide a rich content experience for users. In turn, television networks seek to provide incredible content while generating absurd amounts of revenue from advertiser placements alongside the shining content.

The problem is network ad revenues are declining. Advertisers are looking for new ways to reach consumers, and television is heading for a big change in ad formats. TNS Media Intelligence reports that ad spending across all categories will increase 2.6 percent. Targeted areas like cable are growing at 4.7 percent.

While television searches for its new identity, advertisers are shifting dollars online. TNS predicts that online ad spending will increase 13.4 percent over last year (not including search).

Lesson learned: targeted vehicles attract advertisers.

Why is cable growing? Because the Discovery Channel has now become Discovery Networks, and while audiences are smaller and segmented, advertisers can simultaneously target unique audiences with positioning on the network's niche properties like Discovery Kids and the Military Channel.

Lesson learned: smaller audiences don't equal smaller dollars.

The definition of targeted media vehicle has begun to change. Capturing the consumer mind offers equal opportunity for catastrophe and wealth. The biggest opportunity for portals like Yahoo is to capitalize on specialized interest offerings to targeted groups of people (a.k.a. the social generation). Catastrophe, however, can be found in something else entirely.

The highly publicized battle for AOL's content network and associated advertising revenue was more than just a contest to see who had the biggest… well, bankroll. Ninety-nine percent of Google's revenue comes from its own ad listings, but product diversity holds the keys to Wall Street analysis and subsequent shareholder happiness.

Ultimately Google won the battle, and advertising history was made. So where does that leave number two? In a much better position, thank you. While analysts were quick to point out that Yahoo lost, it looks like Yahoo won from the forward-looking ad model and in-house resource perspective.

Instead of having to share revenue with another portal and expend resources to avoid content conflicts, Yahoo can focus its efforts on expanding areas of influence in creating sticky content areas.

Yahoo is at war with other content providers for audience share. When in battle, close air support is offered to ground troops, and the speed at which that support arrives is critical. Speed is often determined by how much time an aircraft can loiter over the battleground so it can turn on the guns and arrive on the scene to save the day.

Yahoo is loitering over the battleground with its arsenal of product offerings and rich-content destinations. Yahoo is not just a search engine, it's a personal finance provider, an answer engine, a sports and leisure destination and a place to find a new job or employee. Yahoo needs only turn and train its weapons on the target.

Yahoo generates revenue from advertising while attempting to provide a rich content experience for users. In turn, television networks seek to provide incredible content while generating absurd amounts of revenue from advertiser placements alongside the shining content.

The problem is network ad revenues are declining. Advertisers are looking for new ways to reach consumers, and television is heading for a big change in ad formats. TNS Media Intelligence reports that ad spending across all categories will increase 2.6 percent. Targeted areas like cable are growing at 4.7 percent.

While television searches for its new identity, advertisers are shifting dollars online. TNS predicts that online ad spending will increase 13.4 percent over last year (not including search).

Lesson learned: targeted vehicles attract advertisers.

Why is cable growing? Because the Discovery Channel has now become Discovery Networks, and while audiences are smaller and segmented, advertisers can simultaneously target unique audiences with positioning on the network's niche properties like Discovery Kids and the Military Channel.

Lesson learned: smaller audiences don't equal smaller dollars.

The definition of targeted media vehicle has begun to change. Capturing the consumer mind offers equal opportunity for catastrophe and wealth. The biggest opportunity for portals like Yahoo is to capitalize on specialized interest offerings to targeted groups of people (a.k.a. the social generation). Catastrophe, however, can be found in something else entirely.

Yahoo has about 90 million users in its social media destination, and the recent expansion of Yahoo Answers may be the single largest repository for human knowledge on the web. The service defines "personal knowledge" network.

Like other Yahoo user-centric properties such as Flickr and del.icio.us' Yahoo Answers Network (still in beta), its social media destination seeks to connect like-minded individuals so that common interests and resources can be shared.

eMarketer has social media advertising spending pegged at $865 million in 2007, with $525 million aimed at MySpace, $200 million headed for the Facebook/Friendster ilk (i.e., sites other than MySpace) and only $95 million for portal-based social offerings. Vertical social networks and marketer sponsored social networks are the smallest category at about $45 million.

Clearly there is room for growth in the social media ad spending category, and $95 million dollars is not going to make or break a billion-dollar portal's bank. Every portal is betting big that social media ad spending will grow exponentially in the next few years, but with rapid growth comes rapid growing pains.

There are no standards for social media, and few industry initiatives have been able to define what constitutes social media. Advertisers often have difficulty adopting new platforms, and the user-generated component makes a few advertisers a bit skittish. Placing listings on near-questionable content is always a fear, but a bigger problem is the lack of definition.

Ask a dozen social media providers or agencies about social media and you are likely to get a dozen different answers. Early-adopting advertisers may adopt social media advertising, but we aren't likely to see any real traction for a few years to come.

If we have learned nothing else from the evolution of online advertising, we should know that advertisers need something tangible. Social networks are cute and fun, but we have yet to see anything that is adoptable on large scale. Yahoo has an open invitation to help define the space and provide tangible opportunities for advertisers.

From the outside looking in, it appears Yahoo is making a lot of moves to counter Google. Google is going local with radio and newspaper, and so is Yahoo. Google is seeking to capitalize on the social generation of marketing opportunities, and Yahoo is following along as well.

Yahoo will need to drop the "me too" approach in favor of championing its own assets. This focus on satisfying the needs of shareholders has been largely thrust upon the portal due to erroneous comparisons to Google in the financial world.

Much in the same way Rolls Royce and Buick have four wheels and brakes in common, Yahoo is not Google, though they share a few of the same revenue models. Yahoo's heritage as a rich content destination along with specialized channels is a blessing, not a curse. In a nutshell, it is in this area the rest of the world has it wrong.

Can Yahoo catch up? Sure it can, as soon as it stops playing follow the leader. Yahoo must capitalize on its existing assets without forcing a focused change that the industry may not be ready to accept. Social needs and UGC are important, but they take a back seat to tried and true methods of generating revenue.